By Jacob Bunge
One of the last vestiges of the swashbuckling era of commodities
floor trading is fading away.
CME Group Inc., the world's largest futures-market operator,
said Wednesday it is closing most of its futures trading pits in
Chicago and New York as electronic trading has become the
overwhelmingly dominant way futures contracts are bought and sold.
The move, which will take effect by July 2, brings to a close
nearly 150 years of barking and jostling over the price of grain,
oil and interest-rate contracts.
"The time has finally come," said Leo Melamed, chairman emeritus
at CME and a former chairman who helped the exchange develop its
electronic trading platform in the late 1980s. "It's a historic
moment, but one that I think was always out there and was going to
happen."
Some pits will remain at the CME, including for the S&P 500
futures market and for options on futures, which have been slower
to migrate to screens due to the complexity of arranging trades
that incorporate multiple options contracts. CBOE Holdings Inc.,
also based in Chicago, still operates a floor for its S&P 500
index option contracts.
But few of the biggest exchanges in the world still have trading
floors. Some have kept them going primarily for ancillary benefits.
NYSE Group, a unit of Intercontinental Exchange Inc., has trading
floors for stocks and options inside its historic building in lower
Manhattan. However, one of the reasons ICE has kept the floor is
because companies issuing shares to the public enjoy the marketing
experience of ringing the bell above the hubbub of traders.
The Chicago Board of Trade, which CME bought in 2007, opened its
trademark octagonal trading pit in 1870. The Chicago pits gained a
central position in the global agricultural commodities trade, its
bellowing traders helping set world benchmark prices for corn,
cattle and pork bellies. The pits later expanded into contracts
based on currencies, interest rates and stock indexes.
Business in the pits peaked long ago, with floor traders, clerks
and related staff dwindling to about 1,200 in Chicago in recent
years from a high of more than 10,000 in the 1990s. CME last year
traded 31 million futures contracts on its floors in Chicago and in
New York, where it runs the New York Mercantile Exchange. On its
electronic Globex platform, 2.66 billion futures contracts changed
hands.
The futures pits had lost their dynamism in recent years, but
they were once a frenetic hub of activity that was seen as a symbol
of capitalism. The cavernous room roared to life at the start of
the trading day.
"It may have looked crazy, but it was a highly organized system
where people transacted billions of dollars' worth of trades with a
gesture, shout and a handshake," said John Lothian, a former
futures trader.
The CME decision is likely to renew a debate about the
reliability of purely electronic markets. The existence of skilled
floor traders was useful last April when a technical glitch at CME
halted electronic trading in 31 commodities, including corn. Floor
traders scrambled to fill orders using hand gestures and
shouts.
To help floor traders with the transition, CME said in a
statement it would "make booth space available to those who want to
trade electronically following the closure of the open outcry
futures pits."
Traders in Chicago said Wednesday they weren't surprised by
CME's move, given the steady flow of brokers and clerks away from
the exchange floor over the past decade. Electronic systems have
made trading cheaper, faster and more transparent to investors.
"It shouldn't come as a surprise that this day was coming, given
the small amount of liquidity the floor markets have," said Glenn
Holland, a managing director with CQ Solutions in Chicago who
trades interest-rate futures and options from the CME floor. He
said he plans to continue trading options contracts there.
"It's definitely the end of an era," he said.
Write to Jacob Bunge at jacob.bunge@wsj.com
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